Real Estate Appraisal Principles and Methods, Exams of Economics

Download Real Estate Appraisal Principles and Methods and more Exams Economics in PDF only on Docsity! Residential Market Analysis and Highest and Best Use Economics Exam with Verified Answers People tend to purchase homes in areas with amenities and facilities, and where they feel insulated from adverse property conditions. This is an example of the principle of: Conformity Substitution Change Competition - Correct Answers Conformity Which of these can increase conformity in a neighborhood? Covenants, Conditions and Restrictions zoning ordinances ordinances specifying minimum site sizes and setbacks all of these - Correct Answers all of these With regard to the four agents of production, which is the last agent to be satisfied? Capital Land Labor Coordination - Correct Answers Land The fact that a property's value may be different next week than it is today demonstrates what economic principle? Change Balance Anticipation Competition - Correct Answers Change What are the four agents of production? Contribution, Balance, Anticipation, Externalities land, labor, capital, coordination growth, static, decline, renewal capital, coordination, management, buildings - Correct Answers land, labor, capital, coordination Which of these would NOT be an example of the principle of externalities? an in-ground pool on the subject property environmental contamination in a nearby property an auto salvage yard located next door the poor condition of neighboring homes - Correct Answers an in-ground pool on the subject property A person purchases a four-plea because it has a strong income stream. This is an example of the principle of: Competition Anticipation Externalities Market Analysis - Correct Answers Anticipation Nothing ever remains stable or in balanced, as evidenced by the: Principle of Conformity Principle of Substitution Principle of Change Principle of Competition - Correct Answers Principle of Change Finish the sentence: Profit encourages ___________. Profit Declining Markets Copycats Competition - Correct Answers Competition When supply is higher than demand, the value of a product: When analyzing the life cycle for a neighborhood, which stage is characterized by a strong demand and rising values? Externalities Decline Growth Stability - Correct Answers Growth What does USPAP say about market value? appraisers are cautioned to use the same market value definition in every assignment appraisers are cautioned to identify the exact definition of market value and its authority only the market value definition specified in USPAP should be used the client must supply the market value definition to the appraiser - Correct Answers appraisers are cautioned to identify the exact definition of market value and its authority Typical marketing times for single-family homes in the subject's area are 6- 9 months. An appraiser is asked how much of a discount it would take in order to sell a particular property within 30 days. What type of value would this be? book value liquidation value going concern value market value - Correct Answers liquidation value Most real property appraisal assignments are intended to develop an opinion of: value in use liquidation value market value assessed value - Correct Answers market value How is the type of value used in an appraisal assignment determined? all appraisals are for market value the client must supply the value definition to the appraiser it does not matter what type of value is used the appraiser identifies the type of value, based on the intended use of the appraisal - Correct Answers the appraiser identifies the type of value, based on the intended use of the appraisal When insuring a property, what is the cost of producing a functional equivalent of the insured improvement, using modern materials and techniques? cost to cure replacement cost market value reproduction cost - Correct Answers replacement cost What type of value recognizes the cost to replace the improvements but does not include the land value? investment value value in use market value insurance value - Correct Answers insurance value The market value of a property is $255,000 and the loan-to-value ratio is 70%. What is the loan value for this property? $150,500 $188,500 $178,500 $255,000 - Correct Answers $178,500 When insuring a property, what is the cost of producing an exact replica of the insured improvement? replacement cost cost to cure market value reproduction cost - Correct Answers reproduction cost Assessed value is also known as: market value value in use ad valorem value investment value - Correct Answers ad valorem value Which statement is TRUE about property purchase loans and down payments? The greater the down payment, the more chance the borrower will default. The greater the down payment, the less chance the borrower will default. The greater the down payment, the higher the interest rate. There is no correlation between down payment and likelihood of default. - Correct Answers The greater the down payment, the less chance the borrower will default. In relation to real property, the term SLUGER refers to: regression bundle of rights effects on value depreciation - Correct Answers bundle of rights A change in a community's zoning ordinance would be considered a (n) ___________ force affecting values. environmental economic social governmental - Correct Answers governmental When a property is leased, what is the owner's interest called? individual trust condominium leasehold leased fee - Correct Answers leased fee In a typical subdivision with a Homeowners Association, who is responsible for enforcing the deed covenants? The principle of surplus productivity is associated with which approach to value? Cost Approach Income Approach Sales Comparison Approach none of these - Correct Answers Income Approach What type of value is based on a specific investor's needs and desires? market value assessed value loan value investment value - Correct Answers investment value A person purchases a four-plea because it has a strong income stream. This is an example of the: principle of competition principle of anticipation definition of externalities definition of market analysis - Correct Answers principle of anticipation An informed buyer is considering two properties, but will only purchase one of them. They are substantially equivalent, and each has an annual net operating income of $18,000. Property A has a listing price of $199,000, while Property B is listed at $189,000. Which property is the investor MOST likely to purchase? Property A Property B There is not enough information to determine - Correct Answers Property B If a party has all their ownership rights intact, what type of ownership is this? Leasehold Fee simple Leased fee Going concern - Correct Answers Fee simple Factors outside the subject property can have an effect on its value. What economic principle is this? Opportunity Cost Externalities Contribution Anticipation - Correct Answers Externalities Governmental restrictions on use of land include: eminent domain taxation escheat all of these - Correct Answers all of these What type of value includes an operating business with both tangible and intangible assets? going concern value book value insurance value market value - Correct Answers going concern value "A place where goods and services are exchanged" is the definition of a: retail district market neighborhood store - Correct Answers market When analyzing the life cycle for a neighborhood, which stage is characterized by a strong demand and rising values? Externalities Decline Growth Static - Correct Answers Growth Generally, which changes more rapidly in a real estate market? supply demand neither; they both change at the same rate - Correct Answers demand A single-family home is situated in a growing commercial area. The highest and best use is to raze the home and construct a commercial building. A client asks an appraiser to value the property as a single-family home, and not under its highest and best use as a commercial site. What type of value is this client asking for? assessed value value in use market value insurance value - Correct Answers value in use In a typical subdivision, who is responsible for enforcing the deed covenants? the municipal code enforcement officer the homeowners association a designated state government agency local zoning officials - Correct Answers the homeowners association Which of these would be an external factor that could affect the value of a single-family home? an award-winning community library a highly-rated school system an auto wrecking yard located across the street all of these - Correct Answers all of these What type of value is generally considered equivalent to market value? book value value in exchange insurance value loan value - Correct Answers value in exchange producing a value opinion for the subject property - Correct Answers isolating the information that is relevant to the assignment In a market that has maintained a state of equilibrium, what would an appraiser expect to see? properties sell faster than normal home prices remain stable rapid price appreciation there are more sellers than buyers - Correct Answers home prices remain stable In most markets: demand changes faster than supply supply changes faster than demand supply and demand change at the same rate supply and demand have no relationship - Correct Answers demand changes faster than supply What does USPAP state about cost? it is an opinion developed by an appraiser it is a fact, or an estimate of fact it is the same as value it is always less than value - Correct Answers it is a fact, or an estimate of fact Where should an appraiser document his or her data verification sources? in the MLS in the engagement letter in the letter of transmittal in the work file - Correct Answers in the work file When writing an appraisal report, charts and graphs may be used to replace parts of the narrative explanation. True False - Correct Answers True When supply catches up to demand, what happens in the market? property values increase marketing times shorten the market achieves balance additional demand is created - Correct Answers the market achieves balance Discussions of supply and demand in the housing market always return to the principle of: substitution balance conformity contribution - Correct Answers balance In a "seller's market", an appraiser is likely to find: increasing marketing times balance increasing property values large inventories of available properties - Correct Answers increasing property values In determining market supply and demand, questions to be considered by the appraiser would include all of the following EXCEPT: What is the status of the community's infrastructure? Is there a long-term plan for developing the community's future housing needs? What is the physical condition of the subject property? Is demand keeping pace with supply? - Correct Answers What is the physical condition of the subject property? When we refer to "purchasing power", which question are we asking? Who would be the typical purchaser for this property? Does this property generate enough income to motivate an investor to purchase it? Are prospective purchasers able to purchase this property? Is there a property in the market that a typical buyer would want to purchase? - Correct Answers Are prospective purchasers able to purchase this property? In a market area, there were 327 single-family sales last year, and there were 29 expired listings that did not sell. What is the expiration ratio for this area? 12% 4% 8% 5% - Correct Answers 8% What is another name for "average"? mean median mode standard deviation - Correct Answers mean In a market area, there were 168 single-family sales last year, and there are currently 98 properties on the market. What is the monthly absorption rate? 12 per month 8 per month 14 per month 24 per month - Correct Answers 14 per month How might a local community entice a buyer to purchase a blighted property and revitalize it? special assessments offer fewer municipal services reduced tax assessment rent controls - Correct Answers reduced tax assessment The dimensions of the subject property's site would be considered what type of data? preliminary data general data specific data market data - Correct Answers specific data Which statement is TRUE regarding market identification? The market should include a cross-segment of all different property types in a geographic area. Market identification is best accomplished by using maps. The appraiser should draw market boundaries in a way that will support his or her expected conclusions. The market may be subdivided more than once in order to arrive at an appropriate segmentation. - Correct Answers The market may be subdivided more than once in order to arrive at an appropriate segmentation. When analyzing a market for a high-value home, what is the MOST important consideration? the number of residents in the local community the number of potential buyers in the market place the number of acceptable and qualified buyers in the market for this type of property these are all equally important - Correct Answers the number of acceptable and qualified buyers in the market for this type of property One of the problems in appraising high-value homes is: The value of high-value homes will always be less than their cost. Many of these homes are custom built for their current owners, and may not match the needs and desires of buyers. There are very few sales of high-value homes in a market at any given time. There is always a buyer's market for high-value homes - Correct Answers Many of these homes are custom built for their current owners, and may not match the needs and desires of buyers. There is a significant oversupply of high-value homes on the market in Community A, and demand for these homes has not increased. Which statement is FALSE? The value of high-value homes will decline. The value of all homes in the area will decline. This will likely create a buyer's market for high-value homes. None of the Above - Correct Answers The value of all homes in the area will decline. What would be an appraiser's concern in analyzing the market for a high- value residential property? How far away am I going to have to go in order to find comparable sales? How many buyers can afford to purchase this property in this location? Why did the owner build a home of this type in this location? How long is this analysis going to take? - Correct Answers How many buyers can afford to purchase this property in this location? Which statement is TRUE regarding the scope of work decision in an appraisal assignment? It is the sole responsibility of the appraiser. It is the sole responsibility of the client. It is a decision that is made jointly by the appraiser and the client. It is the appraiser's decision; however the client can exercise veto power over it - Correct Answers It is the sole responsibility of the appraiser. What type of analysis consists of primary economic research by an analyst? econometric analysis fundamental analysis consulting analysis none of the above - Correct Answers fundamental analysis Who determines the appropriate level of analysis for appraisal assignment? the client the appraiser the state appraisal board the Appraisal Standards Board - Correct Answers the appraiser What does a real estate investor expect in return for tying his or her money up in an investment property? instant liquidity to break even an acceptable rate of return unfavorable tax treatment - Correct Answers an acceptable rate of return Who is responsible for making an appropriate scope of work decision in an appraisal assignment? the client only the appraiser only the appraiser and client jointly the Appraisal Standards Board - Correct Answers the appraiser only A community's total employment is 29,120. The number of total core industry employees is 18,200. If the core industry adds 450 more jobs, how many additional jobs will be generated in the community? 270 300 160 162 - Correct Answers 270 A community's total employment is 52,220. The number of total core industry employees is 37,300. What is the base core multiplier? 1.3 1.4 economic age effective age - Correct Answers effective age What is an appraiser's responsibility in determining whether the home's footings are at least one foot below the frost line? assume the home was inspected at the time it was built conduct soil-boring tests on the footer and observe it ask the property owner to provide photos of the home when it was being built phone or e-mail the builder and confirm this personally - Correct Answers assume the home was inspected at the time it was built Another term for platform framing is: balloon framing western framing metal pole framing post framing - Correct Answers western framing A property suffers from functional obsolescence because it has outdated single-pane windows. Installation of new multilane windows would cost $24,000 and would increase the value of the property by $20,000. This functional obsolescence is: curable incurable it cannot be determined from the information provided - Correct Answers incurable What entity produces flood hazard maps and assigns flood area designations? FEMA ASB HUD DEP - Correct Answers FEMA Generally, a heating system should be able to maintain an interior temperature of ______ degrees Fahrenheit. 65 98.6 74 70 - Correct Answers 70 When analyzing a market, an appraiser notes that there is a projected increase in production by major employers, which will result in an increase in employment. Which of the following conclusions is MOST TRUE? An increase in supply will likely precede an increase in demand. The area is in the decline phase of the neighborhood life cycle. The appraiser should make negative adjustments in the sales comparison approach for market conditions. An increase in the supply of housing is necessary. - Correct Answers An increase in the supply of housing is necessary. Which would NOT be an appropriate segmentation for a market analysis? Residential - single family - townhouse Residential - multifamily - 2-4 units Commercial - office - single story Residential - retail - restaurant - Correct Answers Residential - retail - restaurant The ANSI standard for measuring residential square footage in homes is based on _________ measurements, for detached dwellings. interior exterior metric tape measure - Correct Answers exterior Due to its durability, what type of siding is being used instead of vinyl siding on many new homes? aluminum siding wood lap siding asbestos siding composite siding - Correct Answers composite siding A custom-built high-quality home is currently listed for sale, and is the only high-value home on the market in its area. The current owner/builder was a single man who disliked his family; consequently he built a one-bedroom home to discourage any of his grown children from moving back in with him. Which statement is true? The home has no value because it has no utility. Even though it is the only home for sale, if it does not meet utility requirements of buyers, it has a lower value. Because the subject is the only high-value home for sale in this area, it will sell quickly. The seller should be able to pick and choose among the numerous offers he will be receiving. - Correct Answers Even though it is the only home for sale, if it does not meet utility requirements of buyers, it has a lower value. If you are appraising in a stable market: positive market conditions adjustments are necessary negative market conditions adjustments are necessary market conditions adjustments may not be necessary the client will determine what type of market conditions adjustments to make - Correct Answers market conditions adjustments may not be necessary What is the most common type of market study that appraisers are asked to complete? feasibility analysis inferred analysis fundamental analysis none of the above - Correct Answers feasibility analysis legally permissible financially feasible maximally productive - Correct Answers physically possible When testing for highest and best use, which criterion (or test) is applied last? physically possible legally permissible financially feasible maximally productive - Correct Answers maximally productive Which highest and best use criterion would require an appraiser to consider minimum lot sizes and height restrictions imposed by a local municipality? physically possible legally permissible financially feasible maximally productive - Correct Answers legally permissible Which highest and best use criterion would require an appraiser to consider the need for the land use, or how many similarly-used land areas are in the market area? physically possible legally permissible financially feasible maximally possible - Correct Answers financially feasible When testing for highest and best use, which two criteria (or tests) are applied first? physically possible and financially feasible legally permissible and physically possible legally permissible and financially feasible financially feasible and maximally productive - Correct Answers legally permissible and physically possible In highest and best use analysis, how do we determine maximum productivity? the use that results in the highest property tax the use that results in the highest land value the use that is the most acceptable to local residents the use that is acceptable to the local zoning board - Correct Answers the use that results in the highest land value A vacant site is zoned for use as a single-family home site, and it is unlikely to be changed. As a single-family home site, the site is worth $75,000. As a commercial site, it would be worth $150,000. What is the highest and best use of this property? commercial use single-family home site neither of these - Correct Answers single-family home site Which highest and best use criterion would require an appraiser to consider the shape of the site? physically possible legally permissible financially feasible maximally productive - Correct Answers physically possible A single-family home is situated on a commercially-zoned lot. It would not be financially feasible to convert the home to commercial use, because there is not enough demand for commercial properties at this time. Demand for industrial property is very strong; however, a zoning change is unlikely. Demand for commercial properties is expected to increase as the community grows. What is the ultimate highest and best use for this property? Industrial use Commercial use Recreational use Not enough information has been provided - Correct Answers Commercial use A single-family home is situated on a commercially-zoned lot. It would not be financially feasible to convert the home to commercial use, because there is not enough demand for commercial properties at this time. However, demand is expected to increase as the community grows. Which statement is TRUE regarding this situation? The home should be razed. The highest and best use of the property is mixed residential and commercial use. Single-family use is an interim use. Commercial use is the highest and best use. - Correct Answers Single- family use is an interim use. A property is currently zoned for agricultural use, but its highest and best use is expected to change to commercial use within the next 3-5 years. The subject property's current use is considered: special purpose interim use illegal use legal, non-conforming use - Correct Answers interim use A duplex is located in a commercially-zoned area. Residential sale prices in the area range from $75-85 per square foot. The residence could be converted to professional offices at a cost of $15 per square foot. Office space in this area is selling at $110-120 per square foot. What is the highest and best use of this property? raze the duplex and build a new office continue use as a single-family home convert the residence into offices whatever the owner says it is - Correct Answers convert the residence into offices A single-family residence is located in a commercially-zoned area. Residential sale prices in the area range from $80-90 per square foot. The residence could be converted to offices at a cost of $25 per square foot. Office space in this area is selling at $90-100 per square foot. What is the highest and best use of this property? convert the residence into offices raze the residence and build a new office financially feasible maximally productive - Correct Answers physically possible An appraiser is analyzing a parcel of vacant land, on a back road in a rural area. The owner tells the appraiser he plans to build a fast-food restaurant on the land. There is no zoning, and no other significant land use restrictions. The appraiser determines the highest and best use is NOT to build a fast food restaurant. What is the most likely reason for this conclusion? it is not physically possible it is not legally permissible it is not financially feasible it is not maximally productive - Correct Answers it is not financially feasible It is a requirement to develop an opinion of the highest and best use of a property: in eminent domain appraisal assignments only if the property has improvements in all appraisal assignments in market value appraisal assignments - Correct Answers in market value appraisal assignments Land that is larger than typical for the area, larger than what is required for the subject's use, and is capable of being sold for a separate use is: excess land surplus land non-conforming land interim land - Correct Answers excess land What is the minimum lot size that is legally permissible? 15,000 square feet 7,500 square feet 5,000 square feet 1 acre - Correct Answers 7,500 square feet What is the maximum number of acres that it is physically possible to develop into lots? 48 acres 16 acres 32 acres 7,500 square feet - Correct Answers 32 acres If the property is developed, how many acres will be lost to infrastructure and ponding? 8 acres 16 acres 32 acres 12 acres - Correct Answers 16 acres What is the maximum number of lots that it is physically possible and legally permissible to develop? 32 185 165 191 - Correct Answers 185 What would be the cost to develop 185 lots? $5,550,000 $3,200,000 $5,950,000 $5,860,000 - Correct Answers $5,550,000 What is the value of the 48 acres based on the current per-acre value indicated by the market? $5,550,000 $1,200,000 $800,000 $880,000 - Correct Answers $1,200,000 What would be the total cost to acquire the property and develop 185 lots? $5,550,000 $6,750,000 $6,950,000 $5,860,000 - Correct Answers $6,750,000 What would be retail sales value of the 185 lots, subtracting the closing costs? $6,920,156 $6,750,000 $6,999,504 $6,455,366 - Correct Answers $6,920,156 185 lots x 7,500, x $5.25, x 0.95 = $6,920,156. Would a residential subdivision of this type be financially feasible? Yes No - Correct Answers Yes What is the highest and best use of this property? Future development of a residential subdivision of 185 lots with 7,500 square feet each Immediate development of a residential subdivision with 185 lots of 7,500 square feet each Immediate development of a residential subdivision with 277 lots of 5,000 square feet each Use as a single-family home site - Correct Answers Immediate development of a residential subdivision with 185 lots of 7,500 square feet each What is the maximum home size that would be legally permissible to build on this site, if vacant? 2,600 square feet 6,500 square feet 2,400 square feet 2,500 square feet - Correct Answers 2,600 square feet Razing and removing home, and constructing new home - Correct Answers Current Use What is the residual land value for House # 1, considering financing costs? $19,500 $50,500 $27,200 $48,000 - Correct Answers $50,500 What is the residual land value for House # 2, considering financing costs? $25,200 $55,500 $27,200 $48,000 - Correct Answers $27,200 $66,800 - $39,600 = 27200 What is the residual land value for House # 3, considering financing costs? $48,000 $27,600 $58,500 $44,200 - Correct Answers $44,200 $88,400 - $44,200 = 44200 Which house(s) is (are) considered financially feasible, considering financing costs? House 1 only Houses 1 and 3 only Houses 2 and 3 only None of the above - Correct Answers House 1 only House 2 ($27,200) and House 3 ($44,200) are less than $48,000 lot cost Which house produces the greatest residual land value, considering financing costs? House 1 House 2 House 3 They are all equal - Correct Answers House 1 What is the highest and best use of this property considering marketing time and financing costs? Construction of House 1 Construction of House 2 Construction of House 3 None of these - Correct Answers Construction of House 1 Population: 8771 people Avg. HH: 3.5 persons/HH 1,974 Housing Units What is the result of your analysis regarding the supply of housing units compared to the demand? The community needs an additional 498 housing units The community has an oversupply of 498 housing units The community needs an additional 532 housing units The community has an oversupply of 532 housing units - Correct Answers The community needs an additional 532 housing units Chapter 5, "Case Study #8": Population is 8,771 divided by 3.5 persons per household indicates a need for 2,506 housing units. Currently there are 1,974 housing units available, which mean there is a shortfall (need) for 532 units. The principle of contribution is most closely associated with: the Income Approach the Sales Comparison Approach the Cost Approach the principle of income cost - Correct Answers the Sales Comparison Approach "The separation and identification of the parts of the whole" is part of the process of: highest and best use aggregation using the Internet analysis - Correct Answers analysis What helps an appraiser determine the appropriate level of analysis to employ in an appraisal assignment? communication with the client the amount of the fee the appraiser's knowledge of appraisal techniques the amount of time given for the appraiser to complete the appraisal - Correct Answers communication with the client What zones are designated as Special Flood Hazard Areas (SFHAs)? A and B only A and C only A and V only A, B, C, and V - Correct Answers A and V only When the market becomes saturated with a certain type of housing, what happens in the market? property values increase marketing times lengthen the market achieves balance additional demand is created - Correct Answers marketing times lengthen What type of analysis consists of primary economic research by an analyst? inferred analysis fundamental analysis consulting analysis none of the above - Correct Answers fundamental analysis